4. the networking equipment manufacturing competition in …
TRANSCRIPT
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4. The Networking Equipment Manufacturing Competition
in China
China is a fast growing country. It’s open and reform policy copies many of the success stories
that had occurred in Taiwan. Export oriented business model, labor intensive industry etc.
China had over taken Taiwan and become the largest textile manufacturer. Sooner or later the
electronic industry which Taiwan is specialized in will be taken over. It does not mean the
manufacturing capability only but the vertical integration from the design of the IC to the final
product marketing.
This chapter is aimed to study the rising competition of the networking industry in China for
Taiwan manufacturers. The first sub chapter will research the similar networking manufactures
that is owned by Mainland Chinese. The second sub chapter does not look at the competition in
China but joint effort on making the greater Chinese owned standard. The final article provides
a Strength, Weakness, Opportunity and Threat analysis of Taiwan networking manufactures in
China for the end of the paper.
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4.1 Competition from China’s Networking Equipment
Manufacturers
4.1.1 Competing Manufacturers
TP- 深圳市普聯技術有限公司Link ( ) claims the first market share holder of the
SOHO networking equipment in Mainland China. It also claims to be the top 5 global
networking brand according to company website – Company profile. 77 Below is a
company logo of TP-Link technology.
Picture 4.1-1 Company logo of TP-Link 78
TP-Link started up in 1996 and produced it’s first ISA bus 10Mbps Ethernet card. It
shares the similar story of Global brand D- 友訊科技Link ( 2332) which also started up
with Ethernet card. The network card was 1Mbps and 10 years earlier than TP-Link in
the year of 1986.79 In China, TP-Link is ranked 39th of the top 100 IT suppliers. The
first one is Lenovo (Previously IBM ThinkPad). The only networking company before
TP-Link is Huawei 3Com.80
TP-Links’ headquarter is in Shengzhen, Guandong Province, with technical support
77 http://www.tp-link.com/company/company.asp 78 http://www.tp-link.com/company/company.asp 79 高 次軒 (Ken Kao)， 作者：陳慧玲， 《打造全球第一品牌 D-Link 年年獲利的傳奇》 〈台
北：商周出版社， 2006〉。 80 2007 Computer Suppliers" Annual Forum (CPW500) on June. 18, 2007
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center in Beijing, Shanghai, Guangzhou, Nanjing, Hangzhou, Chengdu, Wuhan,
Shengyang, Xian, Shengzhen and Jinan 11 cities. Considering the penetration of
service center, TP-Links is among the first comparing to other networking
manufacturers.
TP-Link started international marketing campaign since 2004. It is considered a late
comer to the global market and by the time, the market is saturated with well known
brands already. It has office in Sweden, Singapore and plans for German, Indian, and
Korean office. The other countries are handled by local distributors. There are Australia,
New Zealand, Canada, India and U.S.A.
TP-Link product ranges from Antenna, Network Interface card (NIC), DSL modem,
Ethernet Hub, up to web smart level Ethernet Switch, Printer server, Router, Wireless
product, IP Camera, Home plug, Media converter, PoE device and Firewall.
TP-Link has 2 manufacturing building in Shenzhen, total product area is 42,000 square
meters, with 2,700 total employee and 2,200 on production lines, 150 doing quality
control.
During the Computex 2009 held from June 2 to June 6, the new company name
Proware drew much of my attention. It is actually the same company as TP-Link. The
founding of Proware proves TP-Link is following up Taiwan networking
manufacturers’ footpath. Proware is actually now doing OEM/ODM business, as the
slogan shown on the company booth. The same business model with D-Link 友訊科
技 (2332), which breaks away Alpha networks 明泰科技 (3380) in around 2004 to
specialize in OEM/ODM provider.
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The strategy is simple. Brand owner wouldn’t want to pay the factory who also has a
brand in competition with. Therefore the factory becomes one company while the
brand becomes another individual company, even though every person in this business
is well aware of this structure. The key point is Taiwan business takes let’s say 2004
(the year that the D-Link 友訊科技 (2332) and Alpha 明泰科技 (3380) separated)
minus 1987 (the year D-Link 友訊科技 (2332) started up) equals about 17 years of
learning to make this decision. TP-Link takes 5 years to catch up.
Picture 4.1-2 Snapshot of TP-Link’s OEM/ODM company Proware exhibits in
Computex 2009.
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Picture 4.1-3 Proware’s factory profile.
The second emerging networking equipment manufacturer and brand is Tenda
Technology (深圳市吉祥騰達科技有限公司). Tenda claims to be the top 3 leading
brand in the field in 2002. The company was founded in Shenzhen, China in 1998. It is
different from other networking equipment manufacturers by producing Sound card at
start up instead of basic networking interface card. Below is a company logo of Tenda
technology.
Picture 4.1-4 Company logo of Tenda Technology 81
Tenda’s headquarter is in Shengzhen, Guandong Province, with regional office in
81 http://www.tenda.com.cn/commany/show.php?itemid=636
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Beijing, Shanghai, Chengdu, Guangzhou, Nanjing, Xian, Wuhan, Hangzhou,
Nanchang, Jinan, Shenyang.
Tenda has been in the international market ever since the beginning of company.
However the penetrations are limited to the third world country. It now has branches in
Hong Kong, India, Russia, Singapore and Vietnam. Other advanced markets are by
distribution channels only, no direct owned branch company.
Tenda produces product ranges from Antenna, Wireless device, Switch (up to web
smart class), Router, DSL modem, Network Interface Card, Media Converter. The
product categories are relatively fewer than TP-Link, and the technology level is far
lower than the manufacturers from Taiwan.
Tenda manufacturing facility has 4 SMT production lines, covering approximate
10,000 square meters of space. Employee wise, there are 800 production staffs and
about 50 engineer with specialty in software, hardware, electronic, RF and mechanical
casing.
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Picture 4.1-5 Tenda technology’s balloon in Computex 2009.
同維電子有限公司T&W ( ) was founded in 1991 in Shenzhen, this company didn’t
enter the networking equipment manufacturing business until 1998. In 2006, T&W
claims to be the largest manufacturer for ADSL terminal equipment in China, and one
of the major networking equipment providers to China Telecom.82 In 2008, the second
production facility was opened in Taichung, Jiangsu province. This is the only
Mainland China networking equipment manufacturer out of 3 companies expand it’s
production beyond Shenzhen Pearl River Delta Delta Region to Yangtze River Delta
Region.
Picture 4.1-6 Company logo of Tenda Technology
82 http://www.twsz.com/en/aboutus.do
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T&W does not reveal detail of it’s regional office in China or branch offices oversea.
According to the inquiry from senior manager, T&W specialized in OEM production
only, therefore it does not have the service center or sales office like the other 2
mainland manufacturers.
T&W manufactures products are ADSL/ADSL2+ modem/router, VDSL, wireless
ADSL/ADSL2+ modems/router, PLC Adaptor, PON (ONU/ONT), wireless network
interface card and some IP camera. The PON (Passive Optical Network) is worth noted,
TP-Link and Tenda or even Taiwan networking equipment manufacturers does not
have this product line. PON product is a product for the future FTTH (Fiber To The
Home) network application. It is considering an advanced product compares to
common copper interfaced product commonly available at home now a day.
T&W has 8,000 square meters of office space and 50,000 square meters of space for
manufactory. Comparing the space alone with TP-Link and Tenda, T&W has the largest
manufacturing facility. Company claims it’s monthly output capacity can reach as much
as 2,000,000 pcs.
4.1.2 Foreign Management
This is a short story among networking manufacture industries, the name of the
companies has to be kept confidential.
Few years ago one of the public listed company decide to outsource it’s lower end
product for example the network interface card, dumb switch to one of the above
mention manufacturer. After the factory tour, one plant manager from this Taiwan
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public listed company was hired by the Chinese company. This plant manager also had
manufacturing experience from an old fashioned home appliance manufacturer prior
joined the networking equipment company.
The plant manager from Taiwan brought over entire management plan to the mainland
China’s competing brand. Begin from the factory lay out, warehouse control, efficient
production and management etc. Back in 15 years ago when I was in China, at the time
management teams from Taiwan are mainly being hired by Taiwanese own factory. It’s
hardly heard of managers from Taiwan work for mainland Chinese owned company.
However this situation is changing, many Chinese own high tech company is now
recruiting not only managers from Taiwan but also foreigners with years of experience
in the field.
This story tells us the rising ambition of the competitor in Mainland China. When hiring
a capable and experienced manager, it can bring up the company level to the
international standard fairly quickly. This is also a warning to the Taiwan manufacturer.
If we are not advancing and innovating, mainland China will catch up very soon.
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4.2 Threat or Opportunity of China’s Proprietary Standard
The first section of this chapter discussed about the competition from mainland Chinese
own networking equipment manufacturers. Study tells us they basically follow the
same business model with Taiwan networking equipment manufacturers. The only
difference is the success networking manufacturers from Taiwan has an earlier startup,
mostly in the late 80’s or early 90’s.
4.2.1 Networking Manufacture Business Model
This article wishes to go beyond the business model and looks further to the future’s
networking technology development. The current work flow of networking equipment
manufacturers is like this.
1. Atheros, Broadcom, Marvell, Realtek, Intel
Chipset designer designs the Chip according to IEEE or other alliances agreed standard.
The chipsets are mass produced by foundry like TSMC (Taiwan Semiconductor
Manufacturing Company, 台灣積體電路製造股份有線公司 聯華電子) or UMC ( )
2. Research for advanced technology
Networking equipment manufacturers either study the future trend of technology hence
implement on their product.
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3. Product planning
Networking manufacturer purchase the chipset and place on their mother board, plan
for mass production.
4. R&D
Research and development engineer test the conceptual product, enhance the software
functionality, debugging the error.
5. Material purchasing
Purchasing the necessary material for final mass production, the quality of the
component is decided at this stage, hence the product. This stage decides the reliability
of the product in the market.
6. Assembly
Every piece of components are put on the assembly line, either finished by the
machinery or manually assemble by hand.
7. Testing
The product went through a Quality Checking phase.
4.2.2 Standard Creation Body
The work flow seems to be complicated, and the key step of this process falls on the
first stage – chipset. The chipset design decides most the functionalities or another way
of saying the product specification at the beginning. The rest of the procedure is
basically mount the chipset on the board and assemble to become the final product. The
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networking chipset is designed based on the commonly agreed standard for
interoperability purpose. Today few organizations in the world have the ability and
credibility to call for a standard.
IEEE (Institute of Electric and Electronic Engineer) is one of the leading
standards-making organizations in the world. IEEE performs its standards making and
maintaining functions through the IEEE Standards Association (IEEE-SA). It is a
leading developer of industrial standards in a broad range of disciplines, including
electric power and energy, biomedical technology and healthcare, information
technology, information assurance, telecommunications, consumer electronics,
transportation, aerospace, and nanotechnology. In 2005, IEEE had close to 900 active
standards, with 500 standards under development. One of the more notable IEEE
standards is the IEEE 802 LAN/MAN group of standards which includes the IEEE
802.3 Ethernet standard and the IEEE 802.11 Wireless Networking standard. 83
Picture 4.2-1 International Electrical and Electronic Engineering (IEEE)
Organization logo
Remember the networking production introduction chapter, not every but almost all of
the networking product comes with an Ethernet port for network connection. This
Ethernet technology was based on IEEE standard 802.3. Specifically 802.3 has
83 http://en.wikipedia.org/wiki/IEEE
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advanced from 802.3a in 1985 which runs on 10Mbits/Second, now a day 802.3u
100Mbits/Second is a standard for all computers, it was ratified in 1995. Others like
802.3ab runs on 1 Gbps/second in 1999, 802.3af Power over Ethernet in 2003. Other
not yet ratified standard on the list eg. 802.ba which define the speed 100Gbits/Second.
More we can see on the applications around us, the Wireless LAN, which is based on
802.11 IEEE standards. 802.11b 11Mbits/second in 1999, today it is an outdated
standard. 802.11g runs on 54Mbits/second ratified in 2003, which is a standard in every
notebook computer in 2004 and onward. 802.11n standard can reach a theoretical
throughput of 300Mbits/second, though not yet finalized. Products based on draft
version are commonly available in the market. The wireless technology standard is
advancing relatively fast compare to other IEEE standards, and we see standards are
being commercialized in a rapid speed in recent years.
Thanks to the standard creation organization, so company A product can communicate
with company B product. And that’s why we have internet today. However things might
not be this easy, next chapter will discuss the drawback of not being able to possess self
owned standard.
4.2.3 WIFI Pattern Issue
Using the IEEE standard is free of charge. But chipset design companies or equipment
manufacturers are still being sued by pattern holder. In a short interview with Dr.
許獻聰 who is from the Department of Communication Engineering of National
Central University. He mentioned IEEE does not allow one company’s patterned
intellectual property to be written into the standard paper. However members of the
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standard committee or called task group, most are the representatives of company will
put their intellectual property into the standard without notifying other members. When
the standard becomes final product, original pattern holder begins to sue those
companies one by one, started from the best selling company.
The Australian’s Commonwealth Scientific and Industrial Research Organization short
for CSIRO applied for a patent which describes “a wireless LAN, a peer-to-peer
wireless LAN, a wireless transceiver and a method of transmitting data” in November
1993. The patent approved in January 1996 in the United State.84
Picture 4.2-2 Australian’s Commonwealth Scientific and Industrial Research
Organization (CSIRO) logo
Since 2007 CSIRO had filed patent infringement suits against companies like Buffalo,
3Com, Acct 智邦科技on ( 2345), Asus, Belkin, D- 友訊科技Link ( 2332), Fujitsu,
Marvell, Nintendo, SMC and Toshiba. Several large technology vendors like HP, Apple,
Intel, Dell, Microsoft and Netgear try to fight back by having the research
84 http://apcmag.com
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organization's patent invalidated.
In April of 2009, some of these companies had reached a non-disclosed settlement with
CSIRO. The settlements are either compensation payments, agreements to pay ongoing
royalties fee, or a combination of the two according to Mr. Whelan of the Herald. 85
This recent ongoing case teaches us a lesson that if a company or country does not hold
the intellectual property right of the technology, it will suffer from paying huge royalty
fee or compensation and hence increase the cost of the product. Some will even result in
bankruptcy. Networking manufacturers is not the only Information Technology product
that is being effected by. In the development of IT industry, there are many similar cases
like this for example the CD-ROM royalty fee can consist 18% to 35% of the cost
(study in 2003), the new Blue Ray technology royalty fee etc… If we Taiwan
manufacturers or mainland China manufacturers and government on both strait do not
start to participate in the formation of standard or invest heavily on the Research and
Development of technology, the margin of manufacturing business will remain low.
And always rely on cheap labor to maintain the profit margin. Plus every dollar made, a
portion of it will go to the technology inventor eventually. For companies that enjoy the
traditional OEM business model, this recent ongoing story is a warning.
The Chinese government is well aware of this technology dependency on foreign
country. The next section will talk about one good example of proprietary technology
developed by China for the mobile telecommunication industry.
85 www.thetechherald.com
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4.2.4 China’s Proprietary 3G Standard
O the networking communication field, China or Taiwan does not have much
participation in the building of standard but specialized in low cost production for
foreign brand holder. In the mobile communication field, China is not so behind foreign
competitor.
The new third generation (3G) networks enable a variety of data intensive applications
in addition to basic voice communication. 3G systems consist of the two main
standards, CDMA2000 and W-CDMA, as well as other 3G variants such as NTT
DoCoMo's FOMA (Freedom of Mobile Multimedia Access) and TD-SCDMA (Time
Division Synchronous Code Division Multiple Access) developed mainly by China
government. All the wireless technologies have to solve a common problem, to divide
the finite Radio Frequency spectrum among multiple users to use, and transmit as much
information as possible over the limited spectrum. On January 20, 2006, former
Ministry of and Information Industry of the People's Republic of China now Ministry
of Industry and Information Industry (中華人民共和國工業和信息化部) formally
announced that TD-SCDMA is the country's standard of 3G mobile
telecommunication.86 Finally in January 2009, Ministry of Industry and Information
Technology of PRC awarded licenses of all three standards. TD-SCDMA to China
Mobile 中( 國移動), WCDMA to China Unicom 中國聯通( ) and CDMA2000 awarded
to China Telecom 中國電信( ). This meant that China would have all three main 3G
cellular technology standards in commercial use. It is expected to bring growth to not
only operator but, construction, equipment, mobile phone or chipset manufacturers.
86 http://en.wikipedia.org/wiki/TD-SCDMA
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TD-SCDMA is being pursued by the Chinese Academy of Telecommunications
Technology 電信科學技術研究院(CATT) ( ), Datang and Siemens AG, in an attempt
to be independent from the Western technology. This is primarily for practical reasons,
other 3G technologies require the payment of huge patent fees to western patent holders.
However component of the TD-SCDMA technology is based on spread spectrum
technology, which makes it unlikely being able to escape completely the payment of
license fees to western patent holders. 87
Picture 4.2-3 Logo of TD-SCDMA by China Mobile
China mobile is now the largest mobile phone operator in the world. China also has the
largest market for mobile communication, with millions of potential subscribers still
yet developed. This move on granting license that adapts different technology to
different operator is extremely clever. On one hand it keeps the Chinese Intellectual
Property to the largest operator, on another hand makes the foreign vendor or
government happy and continues investment in mainland. In contrast to the clever
decision made, considering mobile subscribers in China will not be able to switch
operator with the same mobile phone anymore in 3G. But what’s wrong with that, just
buy another new phone.
87 http://en.wikipedia.org/wiki/TD-SCDMA
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Picture 4.2-4 China Mobile Corporate Identity
Picture 4.2-5 China Unicom Corporate Identity
Picture 4.2-6 China Telecom Corporate Identity
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4.3 SWOT Analysis of Taiwan Networking Product
Manufacturers in China
SWOT analysis is a common marketing illustration to show the Strength, Weakness,
Opportunity and Threat of the studied subject. People brainstorm about the issues that
fit the criteria and lay out on a + table for clear understanding. This chapter aim to list
the 4 criteria for the networking equipment manufacturers in China from Taiwan. It’s
also a way to summarize the previous learning into a simple, easy understanding
format.
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Strength
1. Mass production
2. Lower product cost
3. Research and Development
4. Vertical integration
5. Market trend awareness
(Concept)
Weakness
1. Lack of well known brand
2. Marketing
3. Distribution
4. Lack of participation in
standard forming.
Opportunity
1. Prosperity of internet
2. Mass market in Mainland
China
3. Continuous development of
networking technology
Threat
1. Rising competition from
mainland Chinese networking
manufacturers
2. Counterfeit product
3. Rising labor cost.
4. Upcoming regulations
Table 4.3-1 SWOT analysis of Taiwan Networking Equipment Manufacturers in China
4.3.1 Smile Curve Theory
微笑曲線 施振榮Smile Curve( ) theory was invented by Stan Shih ( ) Ex CEO of Acer
computer in his 1992 book. The theory gain it’s popularity due to the fact it outlines the
industrial structure of Taiwan, specifically the electronic industry at the time. The smile
curve’s left hand side includes the technology, patent, research and development. The
middle section includes assembly, manufacturing. On the right hand of the curve is
marketing, distribution and after service. The x-axis shows means the production chain
from the concept to end user. The y-axis means the value created.
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Picture 4.3-1 Value Creation in the Knowledge Economy: The Stan Shih Smile Curve
88
The smile curve best illustrates the strength and weakness of the networking equipment
manufacturers. Observation over the years on the industry reveals Taiwan
manufacturers are leaning toward left hand of the curve, meaning except manufacturing,
company invest more on the research and development. As shown the list in the
Strength quadrum. Very few companies are moving toward the right hand of the curve,
there are some exceptions eg. D-Link, Zyxel, Edimax. D-Link is among the most
famous international brand from Taiwan, due to it’s targeted for the consumer market.
4.3.2 Strength
The strength of Taiwan networking manufacturers are no doubt in mass production.
Especially the geographical location of Taiwan is close by Mainland China, further
88 http://www.madeintaiwan.tv/blog/?p=10
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reduce the manufacturing cost and hence the final product cost.
Market Awareness
Beside mass production, market awareness is also a strength of Taiwan networking
manufacturers. This relies on heavy research and development investment, so
consumer needs can quickly turned into a product in the market. On example of this
market awareness, when companies like HP, Canon, Lexmark release the printer
product that includes the Printer, Fax and Scanner function, known as MultiFunction
Printer Server, short for MFP server. Even the original company did not release such
MFP server product, Taiwan companies has come out the product for LAN users to
share not only printer but also Fax and Scanner function on the MFP. However this
could not be achieve without the support of Chipset designer or strong software
programmers.
Vertical integration
From the previous chapter we had known the networking manufacturing start from the
chipset design. Most of the functions are being confirmed at the design stage. Though
we don’t see networking manufacturers merge the top chipset design, Due to the fact,
each process is so specialized. Recent year, chipset design companies like Realtek
瑞昱半導體 雷凌科技( 2379) or Ralink ( 3534) of Taiwan are emerging in the
networking product supply chain. Couple years ago in this filed, it was dominated by
foreign company.
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4.3.3 Weakness
One of the weakness was point out in the previous paragraph, which is no participation
to the standard creation. Taiwan really can manufacture quality and durable product,
however the marketing is what Taiwanese product lacks of. As shown on the right hand
side of the curve. This problem appears in both agriculture, industrial product or even
tourism. Be specific on the networking product, it’s usage require some knowledge of
computer and networking. Without extensive marketing and education, end customer
wouldn’t be able to understand how a product is being utilized in live.
Product marketing is essential to the success of product. Networking product un-likes
other home appliance. Most of the end users do not have the knowledge of product
application. Therefore the very first step of marketing is to have a nice product outlook.
Then packaged in a designer box that will catch eye’s on the retail shelf. Emphasizing
the functionality does not seem to matter the most for retail product. Networking
product has long been a plain look, square shaped box that draw no one’s attention. It’s
until D-Link that has made such changes.
The marketing of D-Link product is the best among the other networking
manufacturers. We see D-link’s advertisement is not trying to sell a networking product.
It’s like Giant bicycle is not selling Bicycle. Instead D-link is selling a way of life style,
by melting the cold, hard electronic into your living room decoration.
Below is an advertisement of D-Link product extract from D-Link’s company quarterly
magazine. Affixing a sticker on the plain housing, all the sudden it adds much more
beauty and even soul into the product itself.
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Picture 4.3-1 Advertisement in D-Link quarterly magazine 89
D-Link puts the product usage in a cartoon character to allow end user get familiarize
with the VoIP phone. No complicated know how or show off functionalities.
89 http://www. 網路新世界 年春季號dlinktw.com.tw/temp/dk2Publish/6/ 2009 .pdf
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Picture 4.3-2 How to use a D-Link VoIP phone 90
Distribution
Once with a good marketing, distribution channel is the next key to success. As
seen on the right hand side of the curve. It’s value created is in between marketing and
manufacturing service. The most common channel of distribution is through
partnership, distributor to retailer, or straight to whole seller. In the IT industry, many
brand owner open flagship store in the major related product shopping district.
However this store in my observation is more for the image building rather than
actually making sales. Most of the sales are still through distributor – retailer channel.
But this way of selling product seems an evitable weakness. Manufacturer needs a
reliable partner in the local market. The distributor’s asset is it’s relationship it’s dealer
or retailer. At least it seems to be a better way than brand owner opens shops in every
90 網路新世界 年春季號http://www.dlinktw.com.tw/temp/dk2Publish/6/ 2009 .pdf
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countries and cities and bear with the heavy cost or rent and staffing. Another way of
saying is networking product does not adapts the direct sale method in distribute it’s
product.
4.3.4 Opportunity
Once heard a T 中磊V program interview with the general manager of Sercom ( 5388)
what’s excited about the networking product is that I don’t know what new application
will come out next year.
In the past many years we evolved from simple web interface to interactive web
interface. Transferring money or purchasing stock via the online banking service is
made possible. Buying tickets, grocery can be done online. Even watching high
definition movies via streaming is nothing new. Recently many companies has set up
the secure network so it’s employee can work at home via a secure tunnel, it feels no
difference from working at the office. Networking makes many things unimaginable 10
years ago a reality today.
Prosperity of internet is the opportunity of networking manufacturers. There are two
growths factor for the networking development. One is the penetration into more
population. According to the Internet Usage Statistics, the average worldwide internet
penetration is merely 23.8%.91 Chapter 3-1 puts this penetration as a developmental
bottleneck, however a bottleneck is also an opportunity isn’t it. The second growth
factor is the technology development. As discussed previously, as long as the ideas are
keeps on coming or the standard keeps on finalizing, there is always a room for growth.
91 http://www.internetworldstats.com/stats.htm
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4.3.5 Threat
The obvious threat of the Taiwan networking equipment manufacturers in China is
previously discussed. It’s the rising of mainlander networking equipment
manufacturers. We surveyed 3 major competitors which follows the same path or
business model as Taiwan, only about in average 10 years behind. The rising labor cost
is also expected in the area such as Pearl River Delta or Yangtze River delta where
networking equipment manufacturers are highly concentrated. More issues like the new
regulations for example the employment contract law or corporate income tax law
etc… are expected to add extras cost to the business. However all these mentions are
happening or in the visible future, as China grows into a modern and mature nation. In
contrary, it’s the invisible threat that needs us to worry about.
Counterfeit product
Counterfeit product is a worldwide problem for well known brand. China is fame for
it’s ability and lack of government control for counterfeit product. Commonly we see
famous western apparel or accessories for example clothing or handbag being copied
with different level of quality. Now even the electronics which require skilled
manufacturing can also has counterfeit. In China this counterfeit behavior even has a
山name called 寨文化, however it’s not something a great country like China should be
proud of.
The networking products has counterfeit also. There are two types of counterfeiting
product can be classified. One is fake product, which cannot be used at all. It only has
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the appearance and logo of the genuine product. Another type product is manufactured
with low quality level, but useable. Off course it has the same outlook of the authentic
product.
Below is one example of counterfeit D-Link wireless LAN card. Basically it has a
housing which is very similar to the original manufactured product. The silver sticker
that labels the serial number and MAC address (unique address for every network
device) of the device can be seen. Once you open the plastic case, try not to laugh but
real that you can see it’s merely a USB cable with USB type A connector to cheat the
end user. This product is of course completely not functioning.
Picture 4.3-3 Fake D-link wireless LAN card 92
Another type of counterfeit product is useable, but not made to the standard of original
manufacture, eg. simplified the original design of circuit, cheap and unqualified
component etc. And these counterfeit products are probably from the same original
manufacturer or smaller factory.
92 http://www.qbn.com/topics/555444/
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Counterfeit products may have only slightly different outlook from the original product.
Consumer has difficulty to spot the difference hence paid for the price of original
product but lower quality. Networking product unlike other daily product, it requires
delicate design and most importantly extensive testing before handing over to mass
production. Therefore it’s easy to copy the appearance of a product, but the
performance and lifespan or even the after service provided by the original product
manufacturers cannot be copied.
Picture 4.3-4 Genuine D-Link wireless LAN card (Upper) v.s. Counterfeit wireless
LAN card (Lower) 93
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Picture 4.3-5 Simplified design of circuit, original product is the lower one, counterfeit
product is at the top 94
Interestingly, research shows only D- 友訊科技Link ( 2332) product seems to have
counterfeit problem among other networking brand. Since D-Link is the most well
known consumer networking product in the world. The assumption is maybe no one
want to counterfeit a second or third rank brand anyway. The counterfeit product
category remains low entry level class, mostly wired or wireless network interface card
or dumb switch.
94 http://www.mobile01.com/topicdetailv.php?f=110&t=152239&last=1158620
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4.4 Summary
Below is a summary chart of the competing mainland China networking manufacturers.
TP-Link Tenda T&W
Founded 1996 1998 1991
Head Quarter Shenzhen Shenzhen Shenzhen
Employee 2,700 850 N/A
Production space 42,000 m 10,000 m 580,000
Product
Antenna v v x
Wireless product v v v
Network Interface card v v v
DSL modem v v v
Web Smart Switch v v x
Printer server v x x
Router v v v
Firewall v x x
IP Camera v x v
Home plug v x v
Media converter v v x
PoE device v x x
PON x x v
Table 4.4-1 Facts summary of Mainland networking manufacturers
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We see a way for falling behind competitor to catch up is by hiring foreign manager to
implement the advance management. The product supply chain analysis shows chip is
the key component of the networking product. Whoever controls the pattern behind the
standard controls the market penetration. China’s effort in the creation of mobile
telecommunication standard in order to prevent royalty fee paid to foreign countries
and most importantly to bring up the technology level of domestic company. Complete
independence of technology from foreign support is merely impossible for China, as it
requires heavy basic science research and development. Onto the SWOT analysis of
Taiwan networking manufacturers, the strength is the ability to mass production, and
Taiwan is specialized in using the advantage of mainland to lower the cost of
production. In the future, this mass production strength will remain the main
competitiveness of Taiwan in the world. The main weakness of Taiwan networking
manufacturers pointed out is marketing. A diamond without marketing is a rock in the
dirt. At least companies are moving to the right direction. We see these years many
previously Original Equipment Manufacturers began to build brand image and make
networking more user friendly. Opportunity for the industry should be very positive. As
the internet continues to grow, there are people who just join the surf world. We see a
bright future ahead of us. Threat comes from visible and invisible, the piracy problem
in China is a headache for brand owners and will be for sometimes. In the long run, I
believe China will enter a mature economic and this problem should go away by itself.